By Nick Timiraos

JACKSON HOLE, Wyo. -- Federal Reserve Chair Jerome Powell cautioned that past interest-rate increases had yet to fully slow the economy, an argument for holding rates steady for now, even though stronger and sustained growth could require higher rates to keep inflation declining.

"Given how far we have come, at coming meetings we are in a position to proceed carefully," Powell said in a heavily anticipated address at the Kansas City Fed's annual symposium in Wyoming's Grand Teton National Park. "We will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data."

Fed officials lifted their benchmark federal-funds rate last month by a quarter-percentage-point to a range between 5.25% and 5.5%, a 22-year high, continuing the most rapid series of increases in four decades. Their next meeting is Sept. 19-20.

Powell's speech illustrated how he is trying to thread the needle between slowing hiring, investment and spending to bring down inflation without providing so much restraint as to create a needlessly severe economic slowdown.

In June, most officials thought they would raise rates to a range between 5.5% and 5.75% this year, implying one more quarter-point increase later this year. Powell didn't tip his hand on whether the Fed would need to follow through on another rate increase, highlighting instead how coming economic data would inform that decision.

Inflation has slowed in the two months since officials made those projections, but economic activity has shown surprising strength.

Inflation has retreated from a 40-year high last summer, with the consumer-price index climbing 3.2% in July from a year earlier. That is well below the recent peak rate of 9.1% in June 2022.

Core prices, which exclude volatile food and energy categories, increased just 0.2% in both June and July, extending a broader slowdown in price pressures.

"Two months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal," Powell said. "There is substantial further ground to cover."

Some officials are uneasy about raising rates further because they expect past increases will continue to slow the economy by making it more expensive and harder for companies and individuals to borrow. Others worry that if the Fed holds rates steady, strong economic growth could cause inflation to decline more slowly than anticipated.

Powell nodded to both concerns in his remarks. He said financial conditions, including lending standards and borrowing rates, have tightened broadly in a way that typically slows down economic activity, "and there is evidence of that in this cycle as well."

"But we are attentive to signs that the economy may not be cooling as expected," he said. Fed officials have been clear that they see inflation declining further because they expect the economy to grow below its long-run trend of around 2% over the coming year. "Additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy," Powell said.

Last year, Powell delivered an unusually brief address that promised to bring down inflation even at the cost of a recession. The speech jolted investors out of thinking the Fed saw a shorter and painless path to fighting inflation.

Powell echoed some of those themes in a more nuanced speech on Friday. He explicitly rejected any idea that the Fed would change its 2% inflation target.

He also acknowledged uncertainty about just how high rates needed to rise to provide enough economic restraint. Inflation-adjusted interest rates have risen to historically high levels, putting them "well above mainstream estimates" of the so-called neutral rate that neither spurs nor slows economic activity, Powell said. "But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint."